DBRS Comments on Debt Issue by Vale Overseas Limited

DBRS Limited (DBRS) today notes that Vale Overseas Limited (the Company) has re-opened its 6.25% Senior Guaranteed Notes due 2026 and issued an additional $1.0 billion of new notes that will be guaranteed by Vale S.A. (Vale; rated BBB (low) with a Negative trend by DBRS). The Company intends to apply the net proceeds toward the redemption price of Vale’s EUR 750 million 4.375% notes due 2018, issued on March 17, 2010, and for general corporate purposes. Vale plans to issue a notice of redemption following the closing of this offering and to redeem all the outstanding notes due 2018 thereafter. As such, the new issuance is not expected to materially affect Vale’s liquidity and/or credit metrics.

On October 27, 2016, Vale reported Q3 2016 adjusted EBITDA of $3.0 billion, an increase of 27% and 61% compared with Q2 2016 and Q3 2015, respectively. The increase in EBITDA was driven by the combination of higher iron ore prices, up 5% and 6% compared with Q2 2016 and Q3 2015, respectively, and lower break-even EBITDA of $28.30 per dry metric tonne on a landed-in-China basis. The Metal Bulletin 62% CIF Qingdao, China, reference iron ore price averaged $58.36 per tonne in Q3 2016 but averaged $70.98 per tonne in Q4 2016 and $80.96 per tonne in year-to-date 2017. As well, Vale sells a significant volume of 65% Fe iron ore from its Carajás Mine operations, which currently commands a significant grade/quality premium in the $10 to $13 per tonne range. Additionally, the premiums Vale receives for its iron ore pellets have increased significantly following the shutdown of its 50%-owned Samarco Mineração S.A. (Samarco) operations in November 2015. While it is not clear how sustainable the current rally is or when Samarco will restart, Vale is well positioned to take advantage of the current pricing.

DBRS is currently performing its annual review of Vale and expects to address the status of both the Negative trend and the BBB (low) rating as part of that process.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is Rating Companies in the Mining Industry (September 2016), which can be found on dbrs.com under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

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